Migration as a Factor in Development and Poverty Reduction

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Migration as a Factor in Development and Poverty Reduction

June 1, 2003

Feature

By Kathleen Newland

Migration remains very much the exception rather than the rule of human behavior. An overwhelmingly higher number of people stay at home than migrate. Why then does international migration suddenly loom so large on the international policy agenda? Much of the answer lies in the domestic politics of migrant-receiving countries; part lies in the abrupt demographic transition that the major countries of destination are going through. Another element is concern about the consequences of human-capital flight. These and other factors add up to a heightened consciousness about the importance of migration as a force of globalization and economic change.

Understanding the causal relationship between rich country immigration policy and poor country development is a frustrating pursuit, hamstrung by the absence of data, frequently inaccurate data, and a lack of comparable data.

Furthermore, the balance of costs and benefits accruing to the source countries from migration is controversial. The argument usually comes down to one of remittances versus "brain drain," and the evidence on both sides is weak. Developing tools to identify with greater precision the effects of both factors on development, growth, and poverty reduction is necessary in order to come to any confident conclusions about the impact of migration policy on development. There are, however, many other factors that impose costs and confer benefits, and it is important that they too be taken into account even though the state of knowledge about them is similarly patchy.

Understanding the causal relationship between rich country immigration policy and poor country development is a frustrating pursuit

The Costs and Benefits from the Perspective of Poor Countries of Origin

There is little doubt that voluntary migration from a poor to a rich country almost always benefits the individual migrant, who may easily find himself or herself earning in an hour what he or she earned in a day in the country of origin. The question is whether the benefits to individuals (and, commonly, their relatives left behind) aggregate to a general benefit to the home country. The evidence is contradictory and fragmentary. Much of the research that supports beliefs about the overall costs and benefits of migration is based on "micro" studies and cannot conclusively demonstrate the validity of "macro" conclusions.

Remittances

The most often cited support for the positive side of the argument is the observation that remittances from international migrants play an extraordinary role in the economic accounts of many developing countries, far more important than official development assistance. Worldwide, remittances are estimated at about $100 billion per year, and approximately 60 percent of this sum goes to developing countries. Overseas development assistance (ODA) from the 23 countries belonging to the Organization for Economic Cooperation and Development (OECD)'s Development Assistance Committee was $54 billion in 2000. Remittance estimates are notoriously imprecise, however, because remittances often move through private, unrecorded channels.

Moreover, as ODA has been declining, remittances seem to have been rising strongly, even in the face of weak economic performance in the host countries. Flows from the United States to Mexico and Central America, for example, grew from less than $1 billion in 1980 to more than $14 billion in 2002. (see article by Roberto Suro)

Despite these numbers, many experts believe that labor migration does not significantly improve the development prospects of the country of origin. Source countries have had great difficulty in converting remittance income into sustainable productive capacity. In addition, most are able to exercise little control over the composition of their labor exports—rather, it is determined by the foreign labor markets, and may bear no relation to "surplus" labor at home. A few countries, such as the Philippines and India, have focused quite deliberately on "producing" skilled labor for foreign markets, but most are passive in the face of international supply and demand.

In addition, it is argued that remittance income is rarely used for productive purposes. Remittances go in small amounts to poor people (the average size of a transfer from the United States to Latin America is about $200), and are used mostly to support direct consumption as well as some housing, healthcare, and education. A very small proportion of remitted funds seem to go into income-earning, job-creating investment.

Far from being productive, remittances may increase inequality, encourage consumption of imports, and create dependency. They are often delivered with stunning inefficiency; as much as 20 percent of their value is said to disappear, commonly through high transfer fees and poor exchange rate offerings.

The benefits of remittance income to source countries do not necessarily explain the full impact of remittances on poverty. Remittances may not constitute a rising tide that raises all boats, but they do have a very important effect on the standard of living of the households that receive them, constituting a significant portion of household income.

They are an important social safety net for poor families, possibly reducing additional out-migration in particularly difficult times. Studies in the Dominican Republic showed that residents at all economic and social levels received remittances, but that the poor relied on them most heavily, as one would expect. In the aftermath of the devastating Hurricane Mitch in 1999, the government of El Salvador asked the United States government not for additional humanitarian aid, but for extended permission for Salvadoran immigrants to stay legally in the United States so that they could send money to storm-affected relatives back home.

The relatively small portion of remittances that are used for investment (apart from human capital investment through education and health spending) reflects not only the immediate consumption needs of poor families, but also the discouraging investment climate for the poor. Until such problems as poor infrastructure, corruption, lack of access to credit, distance from markets, lack of entrepreneurial skills, and disincentives to savings are tackled, it is unrealistic to expect remittances to solve the problem of low investment in poor communities. In the meantime, remittances lift many recipients out of poverty, if only for as long as remittances continue.

Brain Drain

If remittances are the major benefits of migration from the point of view of the source countries, the loss of human resources—particularly highly skilled people—is the most serious cost. The market for advanced skills has become truly a global market, and the most dynamic industrial economies are admitting—sometimes even recruiting—significant proportions of the highly trained professionals from poor countries. The Economist in a September 2002 article about emigration assembled the following random snapshots of the brain drain:

About 30 percent of all highly educated Ghanaians and Sierra Leoneans live abroad

12 percent of Mexico's population with higher education is in the United States, and 30 percent of its PhDs

75 percent of Jamaicans with higher education are in the United States

Albania lost one-third of its qualified people in the decade after the fall of communism

Half of all foreign students who get PhDs in the United States are still there five years later

Ironically, emigrants from countries in which a very small proportion of people gain tertiary education are not only better educated than their compatriots, but also tend to be much more highly skilled than the people of their destination countries.

The loss of skilled people imposes several different kinds of costs on their countries of origin. The most obvious is perhaps the cost of the education itself, which in almost all cases has been heavily subsidized by the state. The emigration of the educated thus represents a transfer from the poor country to the rich.

There are also fiscal costs associated with the brain drain, in that the country of origin loses the tax revenue that these potential high-earners would have paid into the national coffers.

The net developmental losses of the brain drain are more difficult to estimate. Losses of highly skilled professionals may, in the extreme case—in which dire economic mismanagement, conflict, poor working conditions, and low levels of reward conspire with opportunities abroad—cripple entire institutions and sectors of an economy. The developmental impact of the brain drain is most severe in source countries with weak human resource bases, where educational systems are not capable of replacing those who emigrate. A "musical chairs" game of replacement migration from other countries is thus set in motion.

Sub-Saharan African countries such as Zambia, Liberia, or Zimbabwe represent an extreme. For countries in crisis, the brain drain is only one manifestation of a more general problem of an economy in free-fall. Many other countries that are seeing high levels of skilled immigration are beginning to think in terms of labor—and even skills—export as a comparative advantage, and to think of ways to maximize its benefits.

Transnational Networks

Trying to net out the benefits of remittances and the costs of the brain drain is seen by a growing body of analysis as too limited a framework for assessing the impact of migration on development. Other kinds of financial flows may have more concentrated developmental impact than remittances, which, as we have seen, are used primarily for current consumption.

Foreign direct investment from emigrants back to their countries of origin has tremendous potential, and is already important for some countries.

Tourism from immigrant communities to the "old country" is a major earner for countries from Ireland to Vietnam.

Philanthropy by "home town associations" (Mexico) or "returnee associations" (Jamaica), charitable foundations (Egypt) or by individual expatriates provides significant resources for community development at the local level.

Fundraising for political candidates or causes targets diaspora communities.

Nostalgia for the foods and products of the country of origin creates markets for those products in the immigration country, fostering local production and international trade.

All of these interactions are fostered by the growth of transnational networks that sustain deep relations among migrants, their countries of origin, and the countries in which they have settled. In an age of swift and cheap transportation and communication, emigration no longer represents the break with the home country that it once did. And in this context, social and economic capital can no longer be neatly segregated analytically. Many students of migration agree that these transnational networks are today the most important developmental resource associated with international migration.

Transnational networks are today the most important developmental resource associated with international migration

Transnational networks are not a new phenomenon, but they are relatively new as objects of interest to development analysts and policymakers. Jagdish Bhagwati suggests, "A realistic response requires abandoning the 'brain drain' approach of trying to keep the highly skilled at home. More likely to succeed is a Diaspora model, which integrates past and present citizens into a web of rights and obligations in the extended community defined with the home country as the center." Increasingly, the governments of countries of origin are seeking to cultivate ties with the diaspora, seeing them as a source of investment, overseas market openings, foreign exchange, expertise, and political support (in domestic campaigns as well as vis-à-vis the governments of their new countries of residence).

How Development-friendly Are the Migration Policies of Rich Countries?

It is possible to answer this question with conviction but not with a very solid basis of incontrovertible evidence, mainly because so much is unknown about the complex relationship between migration and development. Are policies that permit large-scale immigration inflows development-friendly? The answer is "yes" if you are convinced that migration is fundamentally a positive force in development; "no" if you are preoccupied with the brain drain and skeptical of the influence of the diaspora. There are questions about the fundamental relationship between migration and development, and questions about which elements of that relationship are susceptible to policy intervention.

A certain number of policy arenas can be identified without much risk as being important to the migration-development relationship, although clear causal connections are hard to identify.

The transactions costs that migrants incur in transferring resources back to their home countries are high. Government actions that encourage competition in financial services to migrants and require transparency on fees, exchange rates, and such will increase the value of remittances that actually reach the intended beneficiaries. New requirements placed on money-transfer services to combat money laundering and financing for terrorist organizations may move in the opposite direction, however, and raise transactions costs.

Transferability of pensions benefits source countries by encouraging return migration and infusing substantial funds into countries of origin as retirees repatriate their savings. Returning migrants bring their expertise and experience as well as their money.

The recruitment policies of rich countries have been criticized as exacerbating the brain drain from poorer countries. Yet recruitment for skilled workers is a central part of the immigration policies of such countries as Australia and Canada. The negative development impact of such recruitment in poor countries might be mitigated by support for education and training in the countries of origin, particularly in fields where needed skills are in short supply.

The legal status of migrant workers has a major impact on their ties with their home countries, in a number of ways. Unauthorized migrants earn less for comparable work than those who work legally, and therefore are able to remit less to relatives at home. For migrants who use smugglers because they lack authorization to enter, the often substantial fees reduce the benefits of moving. Unauthorized migrants are less able to seek recourse when their rights are violated, including labor rights. Policies that open paths to legal status for migrants are likely to have a positive developmental impact in the countries of origin.

Studies have demonstrated that the lack of legal status combined with harsh border enforcement makes migrants less likely to return home periodically for family visits, which may lessen his or her ties with family left behind and discourage the flow of remittances. It also tends to convert temporary or circular migrants to permanency, since they are unwilling to run the risks and bear the expense of repeated border crossing.

Family unity policies (see article by Kate Jastram) also have an impact on the development potential of migration, again through the mechanism of remittances. Harsh policies that make it difficult for families to reunite may encourage migrants to send money to relatives left at home, but that is hardly a recommendation for them. Governments have been known to resist more generous policies for that reason, however. In the diaspora model of transnational ties, reunited families are less likely to be seen as a threat to financial flows.

More generally, immigrant integration policies may follow the same pattern of being good for immigrants but bad for remittances, unless strong transnational ties are established and maintained.

Western European countries have in recent years moved to coordinate migration control and development policies more closely, in order to promote the concept of "co-development," put forward originally by France, which recognizes that the source and destination countries of migration occupy a single transnational space. There remains considerable suspicion among some of the partners that the goal is much more strongly to control migration than to contribute to development.

This is merely a selection of some of the most salient migration policies that have an impact on development. Many others could be explored. The relationship between migration and poverty reduction is complex and uncertain; that between migration and development even more so. A recent authoritative study on the migration development nexus, carried out by the Center for Development Research in Copenhagen for the Danish Ministry of Foreign Affairs came to the following unequivocal conclusion: "There is no direct link between poverty, economic development, population growth, social and political change on the one hand and international migration on the other. Poverty reduction is not in itself a migration-reducing strategy."

Conclusion

Is the pendulum swinging, after decades of benign neglect, toward more institutionalization and regulation of migration and migration-related financial flows? In the case of migration, such a trend could be beneficial, since the "open market" for migrants is largely one of undocumented flows, which leave migrants open to exploitation and abuse against which they have little recourse.

If greater efforts to manage migration are primarily restrictionist in nature, however, ignoring labor market needs and family ties, they will impose high costs (not least through the growth of organized crime) and are likely nonetheless to be ineffective. Regulation of remittances and migrant investment has less obvious up-side potential. Regulatory schemes have often amounted to a tax on earnings, a tax on competitiveness, or a distortion of returns on investment. Apart from regulations aimed at illicit end-uses, such as money laundering or support for terrorism, positive incentives have the best chance of influencing the channels or uses of financial flows associated with migration.

There are not many fora in which cooperative migration policies can be agreed at a global level. International migration policy is marginalized to a remarkable degree within global, as opposed to regional, inter-governmental organizations. The sole exception concerns refugee flows, which are dealt with by the office of the UN High Commissioner for Refugees (UNHCR). This fact reflects the extent to which migration continues to be seen as an issue that lies firmly within the prerogatives of the sovereign state, as well as the reluctance of states to be bound by international agreements pertaining to migration.

Given the untapped potential of migration as a factor in development, and the essential and growing role it is likely to play in the advanced industrial societies in the next 20 years, the relative silence of international organizations is an anomaly.

It is ever more apparent that no state finds it easy to control migration single-handedly. At the regional level, discussion and even cooperation on migration is increasingly common. It seems likely that the pressures on global organizations to take up migration issues will grow along with the attention to this prominent aspect of globalization.

This article is an excerpt from a paper commissioned by the Global Policy project and presented at the Fourth Annual Conference of the Global Development Network in Cairo, Egypt, January 16-17, 2003. A longer version will appear in a forthcoming book on The Development Impact of Rich Countries' Policies edited by Robert Picciotto and Rachel Weaving.

Commission of the European Communities, "Communication from the Commission to the Council and the European Parliament: I. Migration and Development". Brussels, 3.12.2002 COM (2002) 703 final, p. 24.

Crush, Jonathan. "The Global Raiders: Nationalism, Globalization and the South African Brain Drain," in Journal of International Affairs Vol.56, No.1 (Fall 2002).

Desai, Mihir A., Devesh Kapur, and John McHale, "The Fiscal Impact of the Brain Drain: Indian Emigration to the U.S." unpublished paper prepared for the Third Annual NBER-NCAER conference, December 17-18, 2001.

Orozco, Manuel. "Globalization and Migration: The Impact of Family Remittances in Latin America", in Approaches to Increasing the productive Value of Remittances, IAF and Other Case Studies in Financial Innovations and International Cooperative Community Ventures: Papers presented at a conference held at the World Bank, March 19, 2001. Washington DC: Inter-American Foundation, 2001.